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Chasing the Money – What do the Direct Subsidized Student Loan bills passed by Congress mean in practical terms?

Almost a year ago on July 6, 2012, President Obama signed into law the bill (P.L. 112-141) Congress passed that kept the interest rate on Federal Direct Subsidized Loans at 3.4% while a student is in school. However, just as importantly in that bill was a new provision on a different matter—a limitation on the duration of eligibility for Direct Subsidized Loans.  This bill, as several others in the last couple of years, was promulgated with the purpose of chasing the money.  That is, Congress is trying to come up with additional ways to address budgetary shortfalls.  However, this bill was also seen as an incentive to see students graduate more quickly.  To do so, it causes the students to chase the money.  Or, in other words, from a student’s perspective:  “If I want to get the best loans, I have to graduate within no more than 150% of the time it takes for this program to be completed.”  So, what does this mean in practical terms?

Duration of Eligibility

This change in the law establishes a precise limit on how long a student may receive Subsidized Loans.  That limit is 150% of the published length of the program.  The specific duration is predicated upon schools having accurately published the normal time to complete the program in their catalog and other academic program materials.  This is not the amount of time that many students may take to complete the program, but the actual normal time to complete it as provided to and approved by the school’s accrediting agency.  For example, consider a program published as being a 10-week certificate program, but many students complete it in 12 weeks.  When determining the amount of time to base the 150% time limit on for receiving Subsidized Loan eligibility, the school and student would utilize the published length of 10 weeks.  Thus, the student may receive Subsidized Eligibility for up to a total period of 15 weeks maximum.  After that time, the student is no longer eligible for Subsidized Eligibility while enrolled in that program.

Students to be Affected 

This new law affects students who are new borrowers of Direct Subsidized Loans on or after July 1, 2013.  Generally, the Department of Education (ED) considers a “new borrower” to be one who has no outstanding Federal Direct Loans (DL), or the former Federal Family Education Loans (FFEL), on the effective date of the law which, in this case, is July 1, 2013.

Transfer Students

It is important to keep in mind that this law may have particular impact on transfer students.  As stated above, the maximum time that a student may receive Subsidized Loans is based upon the length of the program in which the student is enrolled.   The student’s remaining eligibility is determined by subtracting the amount of time the student has already received Subsidized Loans from the maximum time the student has in the current program (150% x program length – years used).  In the case of a student that received two years of Subsidized Loans while enrolled in a two-year program who transfers into a four-year baccalaureate degree program, the student would still have four years of Subsidized eligibility remaining for that program  (Example:  150% x 4 = 6 years.  Total available = 6 – 2 years already received = 4 years remaining).

In a somewhat reverse transfer example, a student that may have been enrolled in a four-year baccalaureate degree program and decides after three years to transfer to a one-year certificate program, or a two-year associate’s degree program, would have no eligibility remaining

(Example:  150% x 2 = 3 years for associate’s degree.  Total available = 3 – 3 years already received = 0 years remaining).


ED has indicated that Federal Student Aid will track, calculate, and inform students and schools as to which students have exceeded the 150% limit.  It is anticipated that this will happen via use of SAR and ISIR comment codes and comments.  COD is the entity charged with enforcing this limit.  Of note, however, is that schools will need to provide more specific program information that will include the length of the program so that the limit may be accurately calculated.  This is anticipated to occur through COD origination reporting and NSLDS enrollment reporting.  ED has noted that schools must reduce the loan period if a student does not come back in a subsequent payment period in the loan period originally processed (e.g., a student does not return the second term in the loan period), so that they can accurately calculate the percentage of eligibility used.

Additional Guidance

Recent comments from ED highlighted that if a student borrows, as an example, a $2000 Subsidized Loan for an academic year in one loan period, it counts as one year’s utilization toward the 150% limit of Subsidized eligibility.  Thus, it is not necessarily the amount a student borrows, but the number of years for which a loan is received.   There are still some issues for which ED needs to provide clarification.  As one example, the law stipulates that ED has to determine how the aggregate amount borrowed applies when considering a part-time student, as well as how periods from which a student withdraws are counted toward the aggregate 150%.  And, will there be any considerations for a student that changes programs within a school?  Details on how the reporting requirements in COD and NSLDS will be modified will also need to be addressed soon.


Another effect of this law is that a borrower reaching the 150% limit becomes ineligible for interest subsidy benefits on all Direct Subsidized loans first disbursed to that borrower on or after July 1, 2013. Therefore, a student who may think it is alright to stay beyond 150% and just take Unsubsidized Loans will actually see that all of his or her prior Subsidized Loans first disbursed after July 1, 2013 will lose interest subsidy on those loans as well.  So, truly, the student is chasing the money, i.e., trying to finish the program before the cost of his or her loans goes up significantly.

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